Legal Environment Business Problems Questions

Please review attached PDFs (Chapter 3 and Chapter 4 from textbook) and the attached Word doc with 7 case problems and questions for answer. Use the materials from the PDF to answer the questions (also typed below.)

3.2 In 2002, the Concepcions purchased AT&T’s cellular phone service, which advertised the inclusion of free phones. Although they were not charged for the phones, they were charged $30.22 in sales tax based on the retail value of the phones. The contract provided for arbitration of all disputes, but required that claims be brought in the parties’ “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” The Concepcions eventually filed suit against AT&T. Included in the suit was the allegation that AT&T had engaged in false advertising and fraud by charging sales tax on phones it had advertised as free. The complaint was later consolidated into a class-action suit.

AT&T moved to compel arbitration under the terms of the contract. The Concepcions opposed the motion, con- tending that the arbitration agreement was unconscionable and unlawfully exculpatory under California law because it disallowed class proceedings. In particular, the plaintiffs cited the California Supreme Court’s decision in Discover Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005), in which the court ruled that a ban on class proceedings is an unconscionable, and therefore unenforceable, waiver of liability when it occurs in a consumer contract of adhesion, which is not subject to negotiation; the amounts involved are small; and it is alleged that “the party with the superior bargaining party carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.” Is the arbitration clause enforceable? Is it ethical? [AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).]

3.3 FC Schaffer & Associates, Inc. is an engineering firm based in Louisiana that did business with ODA Trading Agency, an Ethiopian entity that represents companies that want to do business in Ethiopia. Endrias, the founder and owner of ODA, employs Mesfin Gebreyes and an independent contractor, Kifle Gebre. Endrias left Ethiopia to live in the United States for five years.

Shortly after Endrias’s departure, Kifle learned that the Ethiopian Sugar Corporation was going to build a sugar mill and ethanol plant in Ethiopia. Kifle then contacted Schaffer about bidding for the project. Schaffer was interested and entered into a contract with ODA that provided that Schaffer would pay a commission to ODA if it was the successful bidder on the project. Schaffer was the low bidder and was chosen to build the mill and plant.

Two months after Schaffer was awarded the contract, Endrias returned to Ethiopia and contacted Schaffer to introduce himself as the owner of ODA. Schaffer had never worked with or heard of Endrias and decided to enter into a new agreement with Mesfin and Kifle. This agreement purported to supersede the prior agreement between Schaffer and ODA. Schaffer refused to pay any commission to ODA under the first agreement, and Endrias sued Schaffer for breach of contract in the U.S. District Court for the Middle District of Louisiana. Can Endrias sue Schaffer in federal court? What law will apply to the breach-of-contract claim—federal law, the state law of Louisiana, or the law of Ethiopia? [ODA Trading Agency v. FC Schaffer & Associates, Inc., 204 F.3d 639 (5th Cir. 2000).]

3.5 In a securities case, the plaintiff sought to compel the production of documents regarding a merger between EdgeMark Financial Corporation and Old Kent Financial Corporation. EdgeMark retained David Olson of Donaldson, Lufkin & Jenrette (DLJ) to act as its invest- ment banker in connection with the merger. EdgeMark sent a number of documents to Olson that it claims are protected by the attorney–client privilege. The plaintiff argues that these documents are no longer protected by the privilege because disclosure to Olson resulted in waiver of the privilege. EdgeMark argues that after the plaintiff’s counsel threatened to sue, EdgeMark’s and DLJ’s inter- ests became “inextricably linked” because the litigation jeopardized the merger. As a result, EdgeMark argues, the documents are protected under the “common interest” rule, which is an exception to the general rule that the attorney–client privilege is waived when a document is dis- closed to a third party. The common interest rule protects from disclosure communications between one party and an attorney for another party when the parties are engaged in a joint defense effort. DLJ is not a party to the lawsuit and has not been asked to assist in the defense. Has the attorney–client privilege been waived, or does the common interest rule preserve the privilege? [Blanchard v. EdgeMark Financial Corp., 192 F.R.D. 233 (N.D. Ill. 2000).]

3.7A pediatrician contracted with Oxford Health Plans to provide care for Oxford members at specified rates. The pediatrician later filed suit in state court against Oxford on behalf of himself “and a proposed class of other physicians,” alleging that Oxford had not made proper payment to them. Oxford moved to compel arbitration, relying on a contractual clause that provided: “[N]o civil action concerning any dispute . . . shall be instituted before any court and all such disputes shall be submitted to final and binding arbitration. . . .” The state court granted Oxford’s motion and referred the matter to arbitration. Both parties agreed that the arbitrator should decide whether their con- tract authorized class arbitration. The arbitrator, relying on the text of the contract, determined that the contract did authorize class arbitration. Oxford then filed a motion

in federal court attempting to vacate the arbitrator’s decision on the ground that the arbitrator “exceeded his powers” under Section 10(a)(4) of the Federal Arbitration Act. Should the arbitrator’s decision stand? [Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013).]

4.2 Many of the athletic shoes sold by Nike, Inc. are manufactured by subcontractors in China, Vietnam, and Indonesia. Beginning in March 1993, Nike assumed responsibility for its subcontractors’ compliance with applicable local laws and regulations regarding minimum wages, overtime, safety, health, and environmental protection. In 1996, the television program 48 Hours reported that Nike products were made in factories where workers were (1) paid less than the applicable minimum wage; (2) required to work overtime and encouraged to work more than the legal overtime limits; (3) subjected to physical, verbal, and sexual abuse; and (4) exposed to toxic chemicals, noise, heat, and dirt, in violation of applicable occupational health and safety laws. These allegations were repeated in articles published in a variety of media.

In response, Nike issued press releases, letters to newspapers, letters to university presidents and athletic directors, and other documents (including full-page advertisements in leading newspapers) stating that the allegations were false and misleading, that its workers were paid in accordance with applicable local laws, that they received free meals and medical care, and that their working conditions complied with safety and health rules. Marc Kasky sued Nike on behalf of the general public under California Business and Professions Code sections 17204 and 17535, claiming that Nike’s statements were false and misleading and were made with knowledge or reckless disregard of California laws prohibiting false and misleading statements. Nike moved to dismiss the complaint on the grounds, among others, that its statements were protected by the First Amendment to the U.S. Constitution.

Can a corporation participating in a public debate be subjected to liability for factual inaccuracies? [Kasky v. Nike, Inc., 45 P.3d 243 (Cal. 2002).]

4.4 Orphan Medical, Inc. manufactured the drug Xyrem, a powerful central nervous system depressant that can cause serious side effects. The Food and Drug Administration (FDA) approved Xyrem for only two uses: the treatment of cataplexy (attacks of muscular weakness) and excessive daytime sleepiness in narcolepsy patients. In 2002, the FDA required that Xyrem carry a “black box” warning, which is the most serious warning placed on prescription medication labels.

In 2005, the federal government launched an investigation of Orphan focusing on the “off-label” promotion of Xyrem. The Food, Drug and Cosmetics Act (FDCA) prohibits the sale of “misbranded” drugs, which includes drugs bearing any information on the label not approved by the FDA. Although physicians may prescribe a drug for any condition, the FDA will not approve a label for any use it has not approved. In effect, this makes it illegal for pharmaceutical representatives to promote drugs for unapproved uses (off-label uses). Because their labels do not contain adequate instructions and warnings concerning the unapproved uses, such drugs are deemed to be misbranded.

Alfred Caronia, an Orphan pharmaceutical sales representative, was recorded promoting Xyrem for unapproved uses, and the government prosecuted him for illegal off-label promotion. After Caronia was sentenced to one year of probation, 100 hours of community service, and a $25 special assessment, he appealed, arguing that the misbranding provisions of the FDCA that prohibit off-label promotion are an unconstitutional restraint on speech. Is the government’s prosecution of Caronia an unconstitutional violation of Caronia’s First Amendment right of free speech? Explain why or why not. [United States v. Caronia, 703 F.3d 149 (2d. Cir. 2012). See also Constance E. Bagley, Joshua Mitts & Richard M. Tinsley, Snake Oil Salesmen or Purveyors of Knowledge?: Off-Label Promotions and the Commercial Speech Doctrine, 23 Cornell J.L. & Pub. Pol’y 337 (2014).]

4.7 Congress enacted the Highway Beautification Act to govern “the erection and maintenance of outdoor advertising signs” in areas next to interstate highways. The act requires each state to negotiate an agreement with the secretary of transportation regarding specifications for size, lighting, and spacing for billboards within 660 feet of the highways. The Federal Highway Administration issued a “Guidance” under the act to permit the use of digital billboards. The nonprofit group Scenic America, whose purpose is to “preserve and improve the visual character of America’s communities and countryside,” challenged the guidance, alleging that it was issued in violation of both the Administrative Procedure Act and the Highway Beautification Act. The defendants, comprising various transportations bodies, moved to dismiss, arguing that Scenic America did not have standing to sue.

What are the requirements for standing? What rationale will the court use to determine whether Scenic America has met each of the elements to establish standing? [Scenic America, Inc. v. United States Department of Transportation, 983 F. Supp. 2d 170 (D.D.C. 2013).]

 

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